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America’s health-care system has problems — all traceable to government intervention — but it could be worse. And if the so-called reform emerging in Congress is enacted, it will be worse.

The nub of the plan is that everyone must have health insurance and that all but the smallest employers should provide it. If someone doesn’t have coverage, he’ll be penalized. Low-income people will be subsidized by the taxpayers. Government will determine what’s covered, which will set off a lobbying frenzy by providers of “indispensable” services and products. (This already goes on in the states, where “mandated benefits” include coverage for drug and alcoholism treatment, in vitro fertilization, and other less-than-widely-used services.) So people will be forced to have coverage they may not want.

Insurers will not be able to deny coverage or charge higher premiums to people already ill, that is, with so-called pre-existing conditions. The mandate to insure everyone and charge the same price regardless of health means that some will be forced to subsidize others. People of whatever income level whose insurance premiums would have been lower without the mandate will have to spend more because risk-based premiums will be illegal. That is not insurance; it’s welfare.

Moreover, if government forces everyone to buy insurance while promising to keep health-care costs down, it will have an incentive to compel insurance companies to hold premiums artificially low. Since premiums will be set lower than the market would set them, insurance companies may choose not to write medical policies. What will the government do then? Order them to stay in business? Subsidize them?

Probably neither — because a key feature that President Obama and Sen. Edward Kennedy favor is a government insurance plan to compete with private companies. Obama says the “public option” would keep private companies “honest.”

People who distrust free markets love to imagine scenarios in which powerful companies engage in “predatory” competition to drive their rivals into bankruptcy. Yet such people have no objection to a government competitor in health insurance. Since any government program will be able to call on the taxpayers for financial support, it will be able to compete unfairly against private firms and perhaps drive them out of business.Rationing health care

President Obama insists that people will be free to keep their current insurance plans. But what if the companies leave the market after being burdened by mandates and price controls, while the subsidized government program predatorily cuts its premium to a below-market level? And how will you keep your doctor if he retires early, fed up with low reimbursements and a ton of red tape?

The politicians’ promises about choice are worthless.

With the government in control and trying to contain costs through price controls, the likely outcome will be shortages, queues, declining quality, and rationing — which means greater government power and less freedom for the rest of us. A growing list of services won’t be covered. Waiting lists will grow. Such things already happen in single-payer countries and with Medicare.

In the end, we will end up with the single-payer system that so many politicians have wanted all along but thought they couldn’t get in one fell swoop. By making it impossible for private companies to operate, the fans of socialized medicine will get their long-held wish.

Under the emerging plan, the government will also create insurance exchanges, or markets for medical coverage. The New York Times reports,

The new entities would also act as financial intermediaries, receiving subsidy payments from the government and sending the money to insurance companies. The insurance exchanges would also redistribute money among health insurance plans, from those with a large share of healthy subscribers to those with large numbers of sick people.

If that isn’t a recipe for favoritism, corruption, and special-interest jockeying, there’s no such thing.

The exchanges are supposed to function like insurance markets, but that is odd, considering that it’s government that keeps the insurance market from functioning fully. Americans are not free to buy whatever policy they want today because an interstate market is prohibited. Why? Because different states have different levels and features of mandated coverage. An interstate market would nullify the mandates by letting people buy the policy best-suited to them regardless of their state’s mandates. It’s a classic case of destroying freedom in order to grant special privileges. What’s more important to a state legislator: your freedom or his campaign contributions from vendors who want their products or services made a mandatory part of that state’s medical coverage?

If government really wanted a competition in insurance, it would abolish that prohibition. Government does not need to create competitive markets. It just needs to get out of the way.Reducing the cost of health care

Obama promises that the new system, which will cost at least $1 trillion over a decade, won’t increase the already-large deficit because he is going to save money by mandating database technology and $200 billion to $300 billion in Medicare and Medicaid cuts. Fat chance. The potential savings from electronic records are grossly exaggerated, studies have shown, and promises to cut billions from medical programs for the elderly and low-income people are hard to take seriously. Wait until the lobbies get hold of those proposals.

Obama also promises a less-expensive system by giving doctors incentives not to do medical tests or refer patients to specialists unnecessarily. But is that something we want to government to have a say in? Do you really want to see a doctor who is rewarded for doing fewer tests?

If unnecessary services are being given today, the problem is that people have no incentive to be cost-conscious about medical care because government makes it attractive to use insurance for even inexpensive, routine matters. In a free market, without tax-code favoritism, people would most likely have insurance for large expenses and pay out of pocket for less-expensive services. People would shop for the best values. In other words, there would be an efficiently functioning market for medical services. As with all markets, over time services would improve and get cheaper. That is what we see in the markets for cosmetic surgery and Lasik eye surgery, elective procedures that most people have to pay for out of pocket.

But instead of letting markets operate, Obama’s reform will go in the opposite direction. To make sure no one gets “unnecessary” medical care, the emerging reform plan calls for fining people who do not have “qualified” coverage. Government will define what “qualified” means. This is shaping up to be a subtle form of rationing, which won’t become obvious until the plan is in effect and people are being denied service. What then?

The upshot is that the likely reform will impose high real costs on most Americans, while ushering in rationing and regimentation. The plan does nothing to address what really keeps health care expensive: government domination of medicine. Tax policy encourages third-party payment for most Americans while government pays for much of the rest through Medicare and Medicaid, giving us an absurd system in which people use insurance for routine services and medical care appears virtually free for retirees and low-income people. Thus, government inflates demand, while licensing and other interventions suppress supply. That must end.

Either we free the people and the market, or say hello to post office health care.

This article originally appeared in the September 2009 edition of Freedom Daily. Subscribe to the print or email version of Freedom Daily.

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Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State.
Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..."
Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics.
A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.

Reading List

Prepared by Richard M. Ebeling

Austrian economics is a distinctive approach to the discipline of economics that analyzes market forces without ever losing sight of the logic of individual human action. Two of the major Austrian economists in the 20th century have been Friedrich A. Hayek, who won the Nobel Prize in Economics, and Ludwig von Mises. Posted below is an Austrian Economics reading list prepared by Richard M. Ebeling, economics professor at Northwood University in Midland and former president of the Foundation for Economic Education and vice president of academic affairs at FFF.